According to recent research, the number of U.S. accountholders at neobanks will rise from 29.8 million (11.4 percent of the population) to 53.7 million (19.9 percent) by 2025. For more traditional institutions, this means a growing threat of losing customers and market share in an increasingly competitive industry. Why is this happening? We break down a few key reasons below.
They are too slow to move to digital
It’s well known that banks and credit unions are risk averse – they have to be, because people are entrusting them with their money and expect them to keep it safe. That said, the increasing speed of new and innovative digital channels to conduct all sorts of business has left consumers – especially the tech-savvy younger generation – impatient for their bank or credit union to catch up. The pandemic only served as an accelerant to this as most people had to adjust to their lives in a whole new setting very quickly indeed. As a result, banks and credit unions that cannot move fast to adopt new digital technology are finding themselves losing account holders to the allure of the digital-only neobanks.
They aren’t taking advantage of fintech and mobile technology
According to Insider Intelligence’s Mobile Banking Competitive Edge study, 89 percent of survey respondents said they use mobile banking. This confirms what the fintech space already knows, which is why there are a slew of mobile-friendly financial tools that have cropped up over the past 15 years or less. Whether it’s BNPL services, remote check deposit, peer-to-peer payment services such as Venmo or Zelle, or financial wellness, these companies know that account holders increasingly prefer to bank on their mobile device. Larky is no stranger to this fact, which is why we help banks and credit unions drive higher engagement via push notifications delivered through the mobile banking app. Account holders are moving away from in-branch visits and desktop computers, preferring to bank on-the-go and when it suits them. Financial institutions must adapt accordingly.
They aren’t focused on the customer experience
Research from consulting firm Mercator revealed that 66 percent of people holding an account at a neobank perceived it to be their primary financial account. They opened a neobank account in the first place because the digital experience made it easy and convenient to do so. In other words, convenience = loyalty.
Whether it’s completing financial transactions, reaching customer support through Twitter, or opening new accounts, neobanks have made it incredibly easy to conduct financial transactions. When you also factor in the relative ease in which other industries adapted to a digital-first experience (at-home learning, remote work, etc.) made people wonder why their bank couldn’t adapt just as easily or quickly.
What does this mean?
Does that mean traditional banks and credit unions should run out and jump all-in in the digital experience? Not necessarily. More than 70 percent of account holders who have a digital-only bank account also have an account with a traditional bank or credit union. Because of their newness, digital banks don’t have the advantage of having established trust with their account holders the same way traditional institutions have.
With all the uncertainties in the market, account holders are waiting to see how these new banks will fare and are making the wise decision to hold on to their traditional bank or credit unions in the meantime. Now is the time for them to recognize what their account holders are looking for in a complete experience – both digital and in-person – and deliver. In our next post, we’ll discuss solutions traditional FI’s can take to effectively compete against neobanks.
If you’re an FI that wants to stay ahead of the latest mobile fintech solutions and deliver an amazing account holder experience, consider Larky to drive app engagement and increase brand loyalty. We deliver customized push notification campaigns directly through the mobile banking app so that account holders receive information that’s most important to them in the time and place that’s most meaningful. Contact us to learn more or schedule a demo to see the magic for yourself.